Dateline: Tel Aviv

November 1, 2006byRob Bates

The diamond industry has always been image conscious—yet it was striking how much of the June meeting of the World Diamond Congress dealt with public relations concerns.

From the WFDB Mark to the discussions over conflict diamonds to the surprisingly lengthy debate on whether synthetics should get GIA reports, the Congress revealed an industry increasingly nervous about how it appears to the world.

“People don’t buy diamonds because they are hard, or because they are shiny,” noted Gareth Penny, managing director of De Beers. “They buy them because of a dream. That dream is built on image and built on reputation.”

In many ways, these concerns aren’t surprising—the industry has become more consumer focused in recent years and is still recovering from the nasty spell of publicity it suffered over the conflict-diamond issue. Many hoped that adoption of the Kimberley Process in 2000 would improve the situation.

Yet, in the six years since, the industry’s image arguably has not improved among the general public or the press, and it may get much worse with the release of the movie The Blood Diamond. And so, the Congress—the biennial meeting of the World Federation of Diamond Bourses and the International Diamond Manufacturers Association—tried to figure out what to do.

In the end, the Congress may be remembered not for any news, but for its auspicious timing. It took place in Israel, four years after a Congress there was canceled because of a spate of terrorist attacks. Prior to the Congress, Israel was enjoying a relatively peaceful spell, and local leaders were eager to show off their country for visitors; among the highlights were performances by the country’s two leading pop stars. Local industry leaders even held a press conference noting the country had seen a resurgence of tourists and buyers.

But it was not to last. Sadly, just two weeks after the event ended, Israel became involved in a war in which its homeland would come under attack.

Following are some of the major issues discussed at the Congress.

THE BLOOD DIAMOND MOVIE

Topic A was The Blood Diamond, the movie starring Leonardo DiCaprio, which many worry will hurt consumer confidence. In fact, Penny announced that the industry would spend $15 million to combat it. “The film [may not] have an impact, but we need to ensure that it doesn’t,” Penny said. “We can’t just hope it doesn’t. Well-run businesses don’t hope.”

Jonathon Pudney, who holds the newly created title at the Diamond Trading Company of “manager, consumer confidence,” said the film is “going to be a big film. It could win an Oscar. We are already seeing media interest in conflict diamonds as a subject. … Consumers want to know that the industry cares about this issue and that conflict diamonds are not in the store.” Pudney noted that the World Diamond Council was distributing a fact sheet for retailers and launching a Web site (diamondfacts.org).

Meanwhile, heads of the groups tried to put on a brave face. “I almost welcome the movie, as long as it sticks to the facts,” said Jeff Fischer, who was re-elected president of IDMA. “We can be proud of the role we played in that story.”

Ernie Blom, a South African who was elected to succeed Israel’s Shmuel Schnitzer as WFDB president, agreed: “The movie is there. It’s a fact of life. We can’t wish it away. I am not going to have sleepless nights over it, because I am proud of what the industry has done. All I ask is that the industry be treated with fairness.”

Blom and Fischer both voiced frustration with nongovernmental organizations’ continued criticism of the industry, with Blom expressing disgust at a recent joint Global Witness–Amnesty International ad that ran in South African newspapers that showed a severed ear with a diamond earring. “It’s really unfair,” said Blom “We’re not really given credit for what we are doing. I would much rather work with the NGOs. I only ask the organizations to actively engage us.”

In general, the industry, which had all but declared the conflict issue dead in recent years, seemed chastened by the renewed spotlight and by reports that conflict diamonds continue to enter the pipeline from troubled countries like Ivory Coast. At the event’s final dinner, De Beers chairman Nicky Oppenheimer warned against “conflict-diamond fatigue”—noting that Ivory Coast and Liberia remain under U.N. sanctions.

OTHER SOCIAL ISSUES

The social-political issues the industry is grappling with go deeper than conflict diamonds. Price sheet publisher Martin Rapaport, who has been championing his plan for “Fair Trade” diamonds, noted that the movie would mean greater interest in Sierra Leone. And while any film crews who visit there will find little conflict—or conflict diamonds—they will find some disconcerting conditions among the country’s alluvial diggers.

“There are millions of diggers in Africa living on about a cup of rice a day,” he noted. “The people who are digging the alluvial diamonds are as much a part of our industry family as anyone here. The fact is, there are millions of dollars in diamonds coming out of Sierra Leone, but there is no plumbing, no wells, no hospitals, the highest rate of infant mortality in the world. It is not [the industry’s] fault, but you will be blamed. We are going to be held responsible for what we sell. We are misleading ourselves if we think we can just wave the Kimberley Process flag and think the NGOs are going to forget about 1 million people.”

Rapaport is a founder of the Diamond Development Initiative, the joint industry- NGO program that gave a briefing for IDMA (which is also a member). Diamond Manufacturers and Importers Association executive director Ben Kinzler noted that the conditions in the alluvial mines “could be a volatile and explosive issue for the industry, just as conflict diamonds was.” At a later press conference, Fischer called DDI “a kind of think tank. The challenge is, how do you improve the conditions without displacing people. We need a very deliberate, thought-out approach.”

Oppenheimer noted that De Beers is also a member of DDI and said, “The circumstances in which many of the miners, or diggers, are working are not acceptable and fall very far short of those we—you or I—would allow in our own operations.”

IDMA also heard a presentation from Michael Rae, the newly appointed head of the Council for Responsible Jewellery Practices. A former executive with the World Wildlife Federation, Rae came across as confident and well versed in industry issues, despite a short time in the industry, as he responded to IDMA’s concerns about the fledgling group. IDMA and other jewelry groups have worried that its requirements for ethical conduct are so onerous only big companies could meet them.

“We want to make sure this is not discriminatory in any way except for ethical versus nonethical companies,” said Fischer. He noted that CRJP’s proposed third-party certification “could be everything from understandable to Draconian. We are supportive, but it has to work for everybody.”

Rae said his organization’s vision of a mine-to-market supply chain that respected human rights and protected the environment had an “ambitious timetable,” with the goal of a working system by the end of the next year.

SYNTHETICS

Image issues lurked behind the debate on synthetic diamonds. Diamond groups want synthetic stones to be seen as a distinct (some would argue inferior) product from natural stones. One way to accomplish that goal is to persuade labs not to grade them, and at the last World Diamond Congress the World Federation passed a resolution asking labs not to issue reports for synthetics.

But on the second day of this year’s Congress, Gemological Institute of America chairman Ralph Destino surprised many when he announced that GIA planned to grade the stones in the near future. (Acting president Donna Baker has since taken a step back, saying there’s “no timetable.”) Destino argued that as a “public benefit corporation,” GIA had no choice and could even face legal action if it didn’t grade the stones. He noted that GIA will see more of the stones now that it’s issuing reports, and therefore can better track their identifying characteristics. Once Destino spoke, the World Federation reversed its earlier resolution, with most arguing that the point was moot now that GIA has made up its mind.

While many weren’t happy with GIA’s decision—outgoing WFDB president Schnitzer said he “regretted” it—the sample report Destino showed basically gave the natural diamond trade nearly everything it could want in a diamond report for synthetics, with one exception: They don’t use a different nomenclature for color and clarity. (See “Resolved,” p. 146.)

Otherwise, the reports make the point that these stones are a distinct product. They’re a different color (yellow). The diamonds are called synthetics and nothing else; in fact, on Destino’s samples the term was used nine times. The word synthetic also will be inscribed on the stone’s girdles. And while it was not surprising that GIA didn’t opt for the manufacturers’ preferred term—cultured—neither did it use the term lab-grown, which former GIA president Bill Boyajian said GIA was “giving consideration to” at last year’s Rapaport Diamond Conference. (Boyajian also echoed synthetic manufacturers’ complaints when he said the word synthetic was confusing because consumers “don’t know what it means.”)

Manufacturers of synthetic diamonds had mixed reactions. By issuing reports, GIA gives them legitimacy, but the nomenclature struck a sour note. Synthetics manufacturer Tom Chatham says he won’t get GIA reports for his stones, a stance that will frustrate GIA’s stated goal of seeing more of the stones. Baker has since told JCK that GIA plans to “continue the dialogue with individuals and companies on all sides of the synthetics. … We will consider carefully all of the views before going forward.”

PROFITABILITY AND MONEY ISSUES

Amid all the worries about how the industry appears to the outside world, there was surprisingly little attention paid to the industry’s not-insignificant internal problems. Yet on the second day, Israeli manufacturer Lev Leviev—speaking far more dynamically in Hebrew than he typically does in English—roused the group by reciting a litany of industry complaints, particularly the age-old one of manufacturer profitability.

“I don’t know any manufacturer who makes money as a manufacturer,” he said. “If they’d have invested their money in real estate, they would have 10 times as much money. … The [big jewelry] chains were once bankrupt. Now they’re worth millions of dollars. At the expense of who? The manufacturers. The manufacturers are getting it from both sides—from their suppliers and their customers. Why does this keep happening—and how do we solve the problem?”

Leviev didn’t have any real answers—other than a suggestion that diamond miners extend credit to their clients, “because then they will be endangering their own money to some extent, and then they will understand the market.” (This was thought to be aimed at De Beers, which requires cash from sightholders up front.) But solutions or no, his speech went over big with the crowd—and many contrasted it favorably with the speeches from DTC executives, which didn’t address the industry’s very real problems, critics said.

IDMA did inject one novel twist—linking financial issues to the current vogue for industry ethics—when it asked DTC managing director Varda Shine in a meeting that any sightholder that doesn’t fulfill its financial obligations be found in violation of the “Best Practice Principles.”

Yet despite the unsettling picture painted by Leviev—and some gloom from attendees—the association leaders tried to strike an upbeat note about the industry’s current shape. “The diamond industry is cyclical,” said Fischer. “We are coming off a strong cycle. You can call it a correction, and it’s painful, but I wouldn’t blow it out of proportion. The long-term prospects are positive.”